2014 Annual Report & Accounts Company Registration No. 08393914
Table of contents Page Officers and professional advisers 1 Chairman s & Managing Director s statement 2 Business Unit Focus 4 Strategic report 6 Directors report 12 Finance Director s report 15 Corporate governance statement 17 Independent auditor s report 18 Consolidated statement of comprehensive income 20 Consolidated statement of financial position 21 Consolidated statement of changes in equity 22 Consolidated statement of cash flows 23 Notes to the consolidated financial statements 24 Accounting policies for the consolidated financial statements 26 Company balance sheet 46 Notes to the company financial statements 47 Image on cover: The Company s Guided Soft Target (GST) in controlled collision with Ford Focus. The GST is an integral part of testing of latest the vehicle Advanced Driving Assistance System.
Officers and professional advisers DIRECTORS Anthony Best, Executive Chairman Timothy John Rogers, Managing Director Robert Andrew Leonard Hart, Finance Director Graham Dudley Eves, Non-Executive Director Frederick Bryan Smart, Non-Executive Director SECRETARY Robert Andrew Leonard Hart REGISTERED OFFICE AB Dynamics Plc Holt Road Bradford on Avon Wiltshire BA15 1AJ Registered number: 08393914 (England and Wales) INDEPENDENT AUDITOR LEGAL ADVISER Crowe Clark Whitehill LLP Pinsent Masons LLP St Bride's House 30 Crown Place 10 Salisbury Square Earl Street London London EC4Y 8EH EC2A 4ES NOMINATED ADVISER REGISTRARS Cairn Financial Advisers LLP Share Registrars Ltd 61 Cheapside Suite E, First Floor London 9 Lion & Lamb Yard EC2V 6AX Farnham GU9 7LL BROKER PUBLIC RELATIONS ADVISER Charles Stanley Securities Ltd Newgate Threadneedle 131 Finsbury Pavement 5th Floor London 33 King William Street EC2A 1NT London EC4R 9AS BANKERS Bank of Scotland Phase 2 2nd Floor North East Canons House Canons Way Bristol BS99 7LB Page 1
Chairman s and Managing Director s Statement Overview We are very pleased to be publishing the second annual report for AB Dynamics Plc since its debut on the AIM market in May 2013.The Company continues to operate in the niche automotive research sector which has, for the past 5 years, experienced steady year on year growth. The management seeks to consolidate the Company s base to create a sound platform for expansion by continuing in its investment strategy to fund product development, the expansion and improvement of facilities and the retention and recruitment of high quality personnel. Results The Business has built on its strong first half performance and delivered what has become a record year, both financially and operationally, since the business was founded in 1982. We have seen continued strong demand for our products and services as our customers in the global automotive testing sector expand their testing capabilities to meet new safety standards and remain competitive. Our traditional markets in Europe and Japan which, when combined with significant growth in sales from China, has resulted in our Track Testing revenues exceeding our expectations and sales of our Laboratory Testing product, the Suspension Parameter Measuring Machine ( SPMM ) remaining in line with our forecasts. This has resulted in an excellent set of financial results for the year, in line with market expectations, with revenues of 13.85 million, representing an increase of 14% over last year s 12.17 million and Profit before Tax at 2.68 million, up 43% from last year s 1.87 million. Operating profit margin increased to 19.1% (2013:15.6% post AIM transaction costs), reflecting the change in product mix throughout the year with Laboratory Test equipment now accounting for 68% of our turnover (2013:60%). Operations Placing On the 5 June 2014, with the assistance of Charles Stanley Securities, we undertook a Placing of New Ordinary Shares, representing the exercise of options, and existing ordinary shares on behalf of certain directors, founders and employees. This was in response to investor demand and was significantly oversubscribed. Many of our existing shareholders took the opportunity to add to their holdings and we were also very pleased to welcome new private and institutional investors as shareholders. We continue to be extremely pleased by the support we have received from our shareholders. Facilities In the year, we have continued with our plans to build and locate to a new dedicated facility. We do, however, continue to experience delays in the planning process, which has led us to lease a further 3,500ft of production space to meet the immediate need to support increased capacity demand. It should be noted that since our IPO in May 2013, we have created an additional 6,900 sq ft (70%) of new office and production space and as announced at the time of our Interim statement on 28 April 2014, the Directors are confident that this will meet capacity requirements until such time as the new facility becomes available, estimated to be in Q3 2016. Product Development Our Track Testing business has shown strong growth over the year and to maintain our ability to deliver high quality solutions to our customers we look to improve our products regularly. During the year, we have completed a comprehensive upgrade to our SPMM. The upgraded SPMM 5000 meets the requirements of testing larger SUV type vehicles and keeps the product relevant for the future. We have received a number of new orders for this upgraded version and made a recent delivery to MIRA UK, the second SPMM we have sold to this company, the first being 17 years ago, which is still in regular use. Employees The business has, since inception, considered its staff an important aspect of the model. We continue to attract and retain some of the very best talent in UK engineering, with the Group reaching a landmark of 61 direct employees. The Company has an ownership sharing structure so as to include its staff in the value creation of the business. The board continues to review these arrangements balanced as always against the best interests of shareholders. Page 2
Dividend Our strong balance sheet provides a good underpinning for a final dividend and we are pleased to announce that the Directors are recommending the payment of a final dividend of 1.5 p per share payable in December 2014 subject to shareholder approval at the AGM. The record date will be 21 November 2014 and the ex dividend date will be 20 November 2014. This will take the total dividend for the year to 2.5p. Current Trading and Outlook Since the beginning of the new financial year, trading has been in line with expectations with significant visibility provided by our existing order book for the remainder of the year. The next year will see the company focus on finalising planning and design of the new factory HQ near our current facility in Bradford on Avon. We will be participating in a number of Advanced Driver Assistance Systems ( ADAS) demonstrations around the world With a promising pipeline of orders, the expanded team and the new infrastructure that we have in place, we look forward to the future with confidence. The Board would like to take this opportunity to thank all of ABD s employees for the hard work and commitment they have given to the business over the last year. Tony Best Tim Rogers Executive Chairman Managing Director 12 November 2014 12 November 2014 Page 3
Business Unit Focus ADAS development using AB Dynamics driving robots Advanced driver assistance systems (ADAS) are systems developed to automate/adapt/enhance vehicle systems for safety and better driving. Safety features are designed to avoid collisions and accidents by offering technologies that alert the driver to potential problems, or to avoid collisions by implementing safeguards and taking over control of the vehicle. Adaptive features may automate lighting, provide adaptive cruise control, automate braking, incorporate GPS/traffic warnings, connect to smartphones, alert driver to other cars or dangers, keep the driver in the correct lane, or show what is in blind spots. ADAS has been among the fastest growing field in automotive market and is expected to register a CAGR of 34% during 2013-2017. Currently, developed countries in Europe and America have had nearly 8% of new vehicles equipped with ADAS, compared to merely about 2% in emerging markets. It is predicted that 50% of new vehicles will carry ADAS by 2022 globally. Advanced Driver Assistance Systems (ADAS) are now fitted to many mainstream cars, and testing them requires particular equipment and capabilities, often including the ability to control relative position between vehicles. With both future EuroNCAP and US NHTSA prioritising the fitment of technology to warn drivers of an impending collision, AB Dynamics robots have been adopted worldwide as the first choice for ADAS testing. ADAS testing checklist: 1 - Drive along a defined path with 1 cm accuracy? 2 - Precisely maintain a vehicle speed profile? 3 - Brake at a fixed rate of deceleration? 4 - Control the relative distance between two vehicles? 5 - Trigger an event when multiple conditions are met? ADAS testing typically involves creating complex scenarios with multiple vehicles (or soft targets) to see whether the vehicle s own systems detect an imminent crash. Using AB Dynamics robots enable these test scenarios to be programmed and run quickly and accurately, giving high repeatability and consistent data. AB Dynamics robots solutions for ADAS testing Path Following AB Dynamics pioneered robot path-following using a GPS motion-pack in 2001 and has been the market leader ever since. Any AB Dynamics steering robot can be used for path-following. The Company s pathfollowing software has been regularly updated to include all of the functionality needed for ADAS testing. AB Dynamics now offers a range of path-following software modules, enabling customers to save money by purchasing only the features that they require. Path-following allows complex manoeuvres to be repeated with unrivalled precision, but it can also be used for very simple functions such as driving in a straight line. The EuroNCAP Autonomous Emergency Braking procedure requires that test vehicle and the towed target should both achieve a lateral position deviation of <0.1m, easy to achieve with ABD path-following. Three path-following runs along a 300m straight line at 80kph. Maximum lateral deviation was 18mm, less than the measurement uncertainty of the GPS motion pack! Page 4
Combined Brake and Accelerator Robot (CBAR) The CBAR is the most popular pedal robot for ADAS testing worldwide; a compact but powerful actuator which controls the vehicle s throttle and brake pedals. Like all of ABD s robots, it has been designed such that the driver can still drive the car manually, which is a major advantage for preparing tests and manoeuvring the vehicle. The CBAR can be upgraded for use in Driverless Testing and to add a clutch actuator for use with The Companies gearshift robot. Using a brake robot or a CBAR, it is possible to achieve consistent accurate braking inputs such as are required for Autonomous Emergency Braking (AEB) and Forward Collision Warning (FCW) tests. A range of control modes is available, including pedal travel, pedal force and vehicle deceleration. Using a robot enables far more accurate and repeatable braking than can be achieved by a human driver. Brake Pedal Force Step (Driver) Brake Pedal Force Step (Robot) Brake force control (to 400N) from 130kph to zero. Violent deceleration and a long-travel brake pedal made this almost impossible for a human driver, but no problem for a brake robot. ABD also supplies a range of controllable soft target systems which can be synchronised with robot- or humandriven vehicles, to reduce the risk of damage to test vehicles when performing ADAS testing. Pedestrian Target Guided Soft Target Vehicle Page 5
Strategic report for the year ended 31 August 2014 The Directors present the Strategic Report of AB Dynamics Plc Limited for the year ended 31 August 2014. Review of the Business in the year The Group this year experienced a record year in terms of sales, with a significant increase in the sales of its Track Testing products. This increase has been driven by the global market for Automotive Testing equipment expanding rapidly in both new sectors and geographies, notably in the Group s case, in the field of testing of the vehicle manufacturers latest Advanced Driver Assistance Systems (ADAS) and the continued rise of China s automotive sector. As a result Track Testing now represents over 68% of the Group s revenue. The Group s current Track Testing order book takes it well into the second half of the next financial year. Furthermore a large amount of orders received in the later part of the year, has unavoidably led to longer lead times to the customer. To address this, the Group has focussed heavily on improving and resolving its supply chain and capacity issues and these activities are starting to bring benefits to the Group s overall order fulfilment performance. Sales in the Group s Lab Testing business have remained broadly flat, partly due to competitive pressure in this relatively mature sector and partly down to capacity constraints in the factory. In response to this, the Group recently announced to the industry that it had redeveloped the SPMM product, which in turn has allowed it to reposition the product in the market place and streamline the manufacturing/supply chain process. The Group continues to invest heavily in new product development. Aside from the aforementioned upgrade to the SPMM, this year we have seen orders for a new generation of guided soft target vehicle, the GST, which is the culmination of nearly two years of work in collaboration with our US partners Dynamics Research Inc. The GST fits neatly into our existing portfolio of Track Testing products and adds to our Soft Target offering essential for ADAS testing. The Group as ever, undertakes a program of continual improvement and upgrades to existing products, which benefit the customers in terms of better usability and function, allowing us to stay ahead of competition. Position of the Group s business at the end of the year The Group continues to operate in the niche automotive research sector which has, for the past 5 years, experienced steady year on year growth. Management seeks to consolidate the Group s base to create a sound platform for the Group s expansion by investing in product development, facilities and retaining and recruiting high quality personnel. Measurements of the Group s performance are provided in the Key Performance Indicators in this section. Key activities under taken this year to support the Group s strategy include: 1. The development of, and expansion in, the Group s core manufacturing and final assembly capabilities, with the utilisation of new Annex facility onsite and a commitment to an additional 3500 sq ft of new offsite assembly facilities coming on stream later this year. 2. The active recruitment of key personnel to new roles in the Group, including new software and electrical development engineers, combined with skilled assembly technicians and toolmakers. Our fulltime head count has now reached 61, with new appointments expected by the end of 2014. 3. Significant effort improving the supply chain, order performance monitoring and business management systems, has led to initial shortening of delivery times and an increase in the units delivered. The Group s new enlarged facility at the Kingston Farm development nearby remains on course for 2016 subject to final S106 approval. It should be noted that, planning delays have necessitated the Group having to secure the aforementioned additional facilities nearby at Holt, these should give sufficient capacity to the Group for the foreseeable future and certainly until such time the new facility comes on line. Page 6
Group s Key performance indicators 1. Maintain sustainable growth in revenue and operating profit The Directors aim to achieve steady sustainable growth in turnover and operating profit. Strong cash management is fundamental to delivering sustainable profit growth and the consistent delivery of cash-backed profit remains a key performance indicator for the Group. In 2014, there were a net cash outflow from operations of 0.7 million (2013: inflow 2.1 million) as our working capital increased by 1.94m to 9.19m (2013: 7.25m). Trade receivables increased by 3.2m compared to the prior year. This reflects the impact of significant levels of invoicing in August 2014 with cash being received post year end. Aside from maintaining its focus on its current product lines, the Directors are ensuring that new product offerings are developed in order to meet customer requirements and demands. 2. Retain, develop and ensure the safety of our people The recruitment, development, retention and health and safety of our people and everyone who works with us or is affected by our operations is paramount. We have the objective of ensuring that safe working practices are consistently adopted and supported by rigorous reviews and training. In 2014, no issue arose. We moved significantly in our provision of HSE procedures and retain an external contractor to manage our systems in this respect. 3. Facilities The Group needs to expand its factory space over time and this year has added significantly to the capacity of the Group. The Directors remain focused on increasing the facilities further, as explained previously in this section. These matters remain key areas of focus for the forthcoming financial year. Page 7
Principal risks and uncertainties facing the business Principal risks and uncertainties Set out below are certain risk factors which could have an impact on the Group's long term performance. The factors discussed below should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties facing the Group. 1. Risks relating to the business and operations of the group The Group is reliant on key executives and personnel The Group s business, development and prospects are dependent upon the continued services and performance of its Directors and other key personnel. The experience and commercial relationships of the Group s personnel help provide the Group with a competitive advantage. The Directors believe that the loss of services of any existing key executives, for any reason, or failure to attract and retain necessary additional personnel, could adversely impact on the business, development, financial condition, results of operations and prospects of the Group. However, several members of staff have worked for the Group for over 20 years and the Group continues to recruit and develop intelligent and motivated individuals. In addition, key man insurance exists for all key personnel in the Group, save for Anthony Best. The Group may not successfully manage its growth Expansion of the business of the Group may place additional demands on the Group s management, administrative and technological resources and marketing capabilities, and may require additional capital expenditure. If the Group is unable to manage any such expansion effectively, then this may adversely impact the business, development, financial condition, results of operations, prospects, profits, cash flow and reputation of the Group. The Group s growth and future success will be dependent to some extent on the successful completion of such expansion strategies proposed to be undertaken by the Group and the sufficiency of demand for the Group s products. The execution of the Group s expansion strategies may also place a strain on its managerial, operational and financial reserves. Should the Group fail to implement such expansion strategies or should there be insufficient demand for the Group s products and services, the Group s business operations, financial performance and prospects may be adversely affected. Potential requirement for further investment The Group may require additional capital in the future for expansion, its activities and/or business development, whether from equity or debt sources. There can be no guarantee that the necessary funds will be available on a timely basis, on favourable terms, or at all, or that such funds if raised, would be sufficient. If additional funds are raised by issuing equity securities, material dilution to the existing shareholdings may result. The level and timing of future expenditure will depend on a number of factors, many of which are outside of the Group s control. If the Group is not able to obtain additional capital on acceptable terms, or at all, it may be forced to curtail or abandon such expansion, activities and/or business development which could adversely impact upon the Group, its business, development, financial condition, operating results or prospects. Litigation Legal proceedings, with or without merit, may arise from time to time in the course of the Group s business, including in connection with intellectual property rights. The Directors cannot preclude litigation being brought against the Group and any litigation brought against the Group could have a material adverse effect on the financial condition, results or operations of the Group. The Group s business may be materially adversely affected if the Group and/or its employees or agents are found not to have met the appropriate standard of care or exercised their discretion or authority in a prudent or appropriate manner in accordance with accepted standards. Page 8
Internal controls Future growth and prospects for the Group will depend on its management s ability to manage the business of the Group and to continue to expand and improve operational, financial and management information and quality control systems on a timely basis, whilst at the same time maintaining effective cost controls. Any failure to expand and improve operational, financial and management information and quality control systems in line with the Group s growth could have a material adverse effect on the Group s business, financial condition and results of operations. New facility Plans for the Group s new facility are still in the development and planning stage. No formal documentation has yet been entered into and, although the Group has established estimated total costs, there can be no guarantee that the project will proceed or that it will proceed as planned. It is possible that costs will increase or other unforeseen issues will mean that the current development project does not proceed. If the facility is not constructed, this may have an adverse impact on the Group s future growth. The Group is reliant on overseas sales representatives, agents and distributors The Group has appointed a number of sales representatives, agents and distributors for certain of its products in overseas jurisdictions, including the US, Canada, India, Japan, Malaysia, Mexico, Germany, China and Taiwan. However, for the majority of these individuals, there are no formal written terms of engagement. Terms concerning, inter alia, notice and termination are therefore uncertain, meaning that there are potential issues regarding the Group s ability to sell and distribute in certain jurisdictions should such sales representatives, agents and distributors cease to work with the Group at short notice. In addition, provisions as to termination payments and/or compensation are also uncertain, meaning the Group is at risk of being liable to pay uncapped compensation to these individuals, either under the Commercial Agents (Council Directive) Regulations 1993 or local law equivalent, as well as possible common law damages if statutory minimum notice periods are not complied with. Uninsured liabilities The Group may be subject to substantial liability claims due to the technical nature of its business and products or for acts or omissions of its sales representatives, agents or distributors. The Group can give no assurance that the proceeds of insurance applicable to covered risks will be adequate to cover expenses relating to losses or liabilities. Accordingly, the Group may suffer material losses from uninsurable or uninsured risks or insufficient insurance coverage. Competitors While the Directors are unaware of any single competitor that provides the range of products and services offered by the Group, there are a number of competitors for each of the Group s product categories. The acquisition of market share by any of these competitors may have a material adverse impact on the Group s revenues and profitability. Limited IP protection The Group does not have a formal policy on intellectual property. While the Directors believe that the barriers to entry in its market are high, the ability of a competitor to develop similar products to those manufactured by the Group may have a material adverse impact on the Group s revenues and profitability. Page 9
2. Risks relating to the market in which the group operates Research & development budgets of global automotive corporations can get squeezed or significantly reduced The global automotive market is highly competitive and continues its recovery from the significant downturn in 2008. Competition is expected to intensify further in light of continuing globalisation in the industry, possibly resulting in industry reorganisation. Factors affecting competition include product quality and features, safety, reliability, fuel economy, the amount of time required for innovation and development, pricing, customer service and financing terms. Increased competition may lead to lower vehicle unit sales, which may result in downward pressure on research and development budgets. Furthermore, adverse issues arising in the automotive industry or in the global economy may significantly reduce the level of these research and development budgets. The Group s ability to respond adequately to changes in the automotive industry and to maintain its position as a leading technology supplier will be fundamental to its future success in existing and new markets and to maintain its market share. There can be no assurance that the Group will be able to compete successfully in the future. Key suppliers Over the past 30 years, the Group has built up a reliable supplier base for its externally sourced components. At present, a significant proportion of these components are supplied by certain key suppliers. While the Group uses its design capabilities to dual source components, there remains a risk of material impact in the short term if one of its key suppliers were to fail. In certain instances, the Group has taken out an insurance policy to protect its profits should a key supplier be unable to supply for whatever reason. Exposure to exchange rate fluctuations The Group is exposed to exchange rate fluctuations, principally the GBP, the US$, the Euro and, to a lesser extent, the Japanese Yen. Changes in foreign currency exchange rates may affect the Group s pricing of products sold and materials purchased in foreign currencies. The Directors believe that its use of certain derivative financial instruments, including foreign currency forward contracts used to hedge sale commitments denominated in foreign currencies, reduces the Group s exposure to this risk. Exposure to economic cycle Market conditions may affect the value of the Group s share price regardless of operating performance. The Group could be affected by unforeseen events outside of its control including economic and political events and trends, inflation and deflation, terrorist attacks or currency exchange fluctuation. The combined effect of these factors is difficult to predict and an investment in the Group could be affected adversely by changes in economic, political, administrative, taxation or other regulatory factors in any jurisdiction in which the Group may operate. Deterioration in the economic climate could result in a delay or cancellation of clients projects. Force majeure events There is a risk that the markets in which the Group currently operates could be affected by events such as war, civil war, riot or armed conflict, acts of terrorism, floods, explosions or other catastrophes, epidemics or quarantine restrictions, which are outside of the Directors control and generally not covered by insurance. Such events could have a variety of materially adverse consequences for the Group, including risks and costs related to decline in revenues or reputational damage, and injury or loss of life, as well as litigation related thereto. Page 10
Laws and regulations The Group is subject to the laws of the United Kingdom. Existing and future legislation and regulation could cause additional expense, capital expenditure and restrictions and delays in the activities of the Group, the extent of which cannot be predicted. No assurance can be given that new laws, rules and regulations will not be enacted or existing laws, rules and regulations will not be applied in a manner which could limit or curtail certain of the Group s activities or services. In addition, the Group may have to defend itself against legal proceedings which could have an adverse effect on trading performance and, in turn, future profits. The Group also exports its products overseas and therefore its exports may be subject to existing and future overseas legislation and regulation and similar risks therefore also applying in relation to such overseas existing and future legislation and regulation. Approved by the board on 12 November 2014 Tim Rogers Director Page 11
Directors report The directors present their report and the audited financial statements of AB Dynamics plc for the year ended 31 August 2014. Dividends During the year an interim dividend of 0.01 per share was paid and the Board has proposed a final dividend of 0.015 per share. Research and development The Group continues to invest in research and development associated with the design and manufacture of test equipment for vehicle suspension, steering, noise and vibration. Costs attributed to this process have been charged to the consolidated statement of comprehensive income to the extent that they do not meet all of the criteria for capitalisation as set out in IAS 38 Intangible Assets. Financial instruments The Company's principal financial instruments comprise cash at bank, bank facilities, and various items within current assets and current liabilities that arise directly from its operations. The Group s financial risk management objectives and policies are set out in note 19 to the financial statements. Directors The following directors have held office during the year: Anthony Best Timothy John Rogers Robert Andrew Leonard Hart Graham Dudley Eves Frederick Bryan Smart At the forthcoming Annual General Meeting in accordance with the Company s articles of association, Anthony Best will retire by rotation and being eligible will offer himself for re-election. Conflicts of interest Under the articles of association of the company and in accordance with the provisions of the Companies Act 2006, a director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict with the company's interests. However, the directors may authorise conflicts and potential conflicts, as they deem appropriate. As a safeguard, only directors who have no interest in the matter being considered will be able to take the relevant decision, and the directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate. During the financial year ended 31 August 2014, the directors have authorised no such conflicts or potential conflicts. Page 12
Directors interests in shares Directors' interests in the shares of the Company, including family interests, were as follows: Ordinary shares of 1p each Anthony Best 6,797,107 Timothy John Rogers 152,101 Robert Andrew Leonard Hart 11,389 There have been no changes in the Directors' shareholdings since the year end. Directors interests in share options Exercise As at Exercised As at price1 September during 31 August Earliest date Latest date (pence) 2013 the year 2014 for exercise for exercise Timothy John Rogers 12.52 186,100 186,100 22 May 2014 1 February 2023 Timothy John Rogers 12.52 186,100 186,100 22 May 2015 1 February 2023 Timothy John Rogers 12.52 186,100 186,100 22 May 2016 1 February 2023 Robert Andrew Leonard Hart 12.52 5,133 5,133 22 May 2014 1 February 2023 Robert Andrew Leonard Hart 12.52 5,133 5,133 22 May 2015 1 February 2023 Robert Andrew Leonard Hart 12.52 5,134 5,134 22 May 2016 1 February 2023 Directors remuneration and service contracts The remuneration paid to the directors during 2014 is shown below: Short term Post Share benefits employment based (Incl. bonus) benefits payments Total Total Anthony Best 107,841 107,841 84,471 Timothy John Rogers 177,245 6,300 11,941 195,486 150,390 Robert Andrew Leonard Hart 113,569 3,938 329 117,836 100,373 Graham Dudley Eves 30,000 30,000 10,000 Frederick Bryan Smart 30,000 30,000 10,000 458,655 10,238 12,270 481,163 355,234 Other substantial shareholdings As at 11 November 2014, being the latest practicable date before the issue of these financial statements, the company had been notified of the following shareholdings which constitute 3% or more of the total issued shares of the company. Ordinary shares Shareholding No. % Anthony Best 5,597,107 33.4 Anne Middleton 1,800,000 10.7 Naemi Best 1,200,000 7.2 UK Multicap Income 1,088,539 6.5 The Diverse Income Trust Plc 920,877 5.5 Amati Global Investors 651,960 3.8 YFM Private Equity Limited 537,175 3.2 Page 13
Statement of Directors responsibilities The Directors are responsible for preparing the annual report and the group and parent company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law, they are required to prepare the group financial statements in accordance with International Reporting Standards (IFRSs) as adopted by the European Union (EU) and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that year. In preparing each of the group and parent company financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and the parent company s transactions and disclose with reasonable accuracy at any time the financial position of the group and the parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors report that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the website. Legislation in the United Kingdom concerning the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Provision of information to auditors Each of the persons who are directors at the time when this Directors Report is approved has confirmed that: so far as that director is aware, there is no relevant audit information of which the Company s auditors are unaware; and that director has taken all the steps that ought to have been taken as a director in order to be aware of any information needed by the Company s auditors in connection with preparing their report and to establish that the Company s auditors are aware of the information. Auditor The auditors, Crowe Clark Whitehill LLP, will be proposed for re-appointment in accordance with Section 489 of the Companies Act 2006. This report was approved by the board and signed on its behalf. Anthony Best Director Page 14
Finance Director s Report Revenue m 12.17 13.85 Revenue The Group s revenue grew to 13.85m (2013: 12.17m). 6.5 8.91 The growth of 13.8% was driven by strong demand for Track testing products, notably for the testing of Advanced Driver Assistance Systems (ADAS). 2.65 2010 2011 2012 2013 2014 Operating Profit m 2.65 1.80 1.89 A segmental analysis of revenue is provided below which illustrates particularly strong growth from Track Testing products. Profitability Operating profit increased to 19.1% (2013:15.6% post AIM transaction costs), reflecting the change in product mix throughout the year with Track Testing equipment now accounting for 68% of turnover (2013: 60%). In accordance with IFRS 2 Share Based Payments, we have included a 27,861 charge for Director and employee share options. Further details can be found in note 22 to the financial statements. -0.18 0.73 Taxation The effective tax rate for the Group in 2014 was 19.6%. 2010 2011 2012 2013 2014 This was lower than the corresponding figure of 23.70% in 2013 as a result of lower rates of mainstream corporation tax and the introduction of the Patent Box tax relief. Operating Profit Margin % 11.2 20.2 15.6 19.1 Foreign exchange risk During 2014 the Group continued to generate significant surplus US Dollars through sales to customers. Significant amounts were sold into Sterling at spot rates towards the end of the financial year thus reducing our exposure to future adverse foreign exchange movements. -6.6 2010 2011 2012 2013 2014 The Group continues to monitor the need for forward contracts depending upon the level of natural hedging achievable and the extent to which surplus currencies are expected to be generated. Exchange losses incurred in the year amounted to 33,887 compared to a gain of 80,823 in 2013. Working Capital Working capital increased by 1.94m to 9.19m (2013: 7.25m). Trade receivables increased by 3.2m compared to the prior year. This reflects the impact of significant levels of invoicing in August 2014 with cash being received post year end. Page 15
Total assets 11.62 13.59 Cash flow Cash flows generated from operations before working capital movements were strong at 2.82m (2013: 2.01m). 6.95 4.96 3.48 2010 2011 2012 2013 2014 Turnover by region m The Group has a strong balance sheet with net funds of 4.9m (2013: 6.0). Capital expenditure Capital expenditure on tangible assets was 347,486 (2013: 678,461) and included approximately 60,000 of costs incurred in respect of the new facility. Capital expenditure in 2015 and 2016 is expected to be significantly higher given the new building project. Earnings per share Underlying basic earnings per share was 13.08p (2013: 10.01p). This calculation is based on the underlying profit after tax of 2.15m and 16,452,254 shares, being the weighted average number in shares in issue during the year. Diluted earnings per share were 12.11p (2013: 9.48p). Further details of the earnings per share calculations are provided in note 8 to the financial statements. Turnover by product m 4.2 0.2 Track Testing 9.4 Laboratory Test equipment TMS Critical accounting policies Revenue is recognised on a pro-rata basis according to the work performed and the degree of completion of the contract. Where the value of the work performed on a contract exceeds the aggregate of payments received on account from customers, the resulting balance is included in trade and other receivables. Where the aggregate of payments received on account from customers exceeds the value of work performed on a contract, the resulting balance is included in current liabilities. Dividends The Board has proposed a final dividend of 1.5p per share payable in December 2014 subject to shareholder approval at the AGM on the 9 December 2014. The record date will be 21 November 2014 and the ex dividend date will be 20 November 2014. This will take the total dividend for the year to 2.5p. Page 16
Corporate governance statement The Board of AB Dynamics plc appreciate the value of good corporate governance and intend to respect the requirements of the UK Corporate Governance Code (the Code ) on corporate governance, as far as applicable to the Company given its current size and stage of development. The Board is responsible for the direction and overall performance of the Group with emphasis on policy and strategy, financial results and major operational issues. The Code recommends that at least one-third of Board members should be non-executive Directors. Board structure The Board consists of five directors of which three are executive and two non-executive. The Board meets as and when required and is satisfied that it is provided with information in an appropriate form and quality to enable it to discharge its duties. All directors are required to retire by rotation with one third of the board seeking re-election each year, with the exception of the first year The board has undertaken a formal assessment of the auditor's independence and will continue to do so at least annually. This assessment includes: a review of non-audit services provided to the company and the related fees; a review of the auditor's own procedures for ensuring the independence of the audit firm and parties and staff involved in the audit; and obtaining confirmation from the auditor that, in their professional judgement, they are independent. Internal controls The Board is responsible for the Company's system of internal controls and for reviewing their effectiveness. The internal controls are designed to ensure the reliability of financial information for both internal and external purposes. The Directors are satisfied that the current controls are effective with regard to the size of the Company. Any internal control system can only provide reasonable, but not absolute assurance against material mis-statement or loss. Given the size of the Company, there is currently no need for an internal audit function. Rob Hart Finance Director Company Secretary Page 17
Independent Auditor s report to the members of AB Dynamics plc We have audited the financial statements of AB Dynamics plc for the year ended 31 August 2014 which comprise of the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. We read all the financial and non-financial information in the Chairman s Statement, Strategic Report, Directors Report, Finance Director s Report and Corporate Governance Statement and any other surround information to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group s and of the parent company's affairs as at 31 August 2014 and of the group s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Page 18
Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors' remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Leo Malkin Senior Statutory Auditor for and on behalf of Crowe Clark Whitehill LLP, Statutory Auditor St Bride s House, 10 Salisbury Square London EC4Y 8EH 12 November 2014 Page 19
Consolidated financial statements Consolidated statement of comprehensive income Year ended Year ended 31 August 31 August Note Continuing operations Revenue 13,846,562 12,171,473 Cost of sales (9,816,570) (9,048,895) Gross profit 4,029,992 3,122,578 Administrative expenses (1,378,718) (914,344) Operating profit before AIM transaction costs 2,651,274 2,208,234 AIM transaction costs (315,305) Operating profit 2,651,274 1,892,929 Net finance income and (costs) 4 25,692 (27,698) Profit before taxation 5 2,676,966 1,865,231 Corporation tax expense 6 (525,055) (441,974) Profit after taxation 2,151,911 1,423,257 Other comprehensive income Total comprehensive income for the year attributed to equity holders 2,151,911 1,423,257 Earnings per share Basic (pence) 8 13.08p 10.01p Earnings per share Diluted (pence) 8 12.11p 9.48p Adjusted EPS (before AIM transaction costs): Adjusted earnings per share Basic (pence) 8 13.08p 12.23p Adjusted earnings per share Diluted (pence) 8 12.11p 11.58p Page 20
Consolidated financial statements Consolidated statement of financial position as at 31 August 2014 Note ASSETS NON-CURRENT ASSETS Property, plant and equipment 9 1,219,983 1,012,109 1,219,983 1,012,109 CURRENT ASSETS Inventories 10 1,998,831 1,486,390 Trade receivables 11 4,339,755 1,132,625 Other receivables, deposits and prepayments 12 185,007 266,950 Amount owing by contract customers 13 949,197 1,736,598 Financial instruments 14 Cash and cash equivalents 15 4,896,206 5,990,176 12,368,996 10,612,739 TOTAL ASSETS 13,588,979 11,624,848 EQUITY AND LIABILITIES Share capital 16 167,757 163,070 Share premium 2,385,910 2,302,528 Reconstruction reserve (11,284,500) (11,284,500) Merger relief reserve 11,390,000 11,390,000 Retained profits 7,666,718 5,650,416 Total equity attributable to owners of the Company and total equity 10,325,885 8,221,514 NON-CURRENT LIABILITIES Deferred tax liabilities 17 79,273 41,923 CURRENT LIABILITIES Trade and other payables and accruals 18 2,913,843 3,163,093 Provision for taxation 269,978 198,318 3,183,821 3,361,411 TOTAL LIABILITIES 3,263,094 3,403,334 TOTAL EQUITY AND LIABILITIES 13,588,979 11,624,848 The financial statements were approved by the Board of Directors and authorised for issue on 12 November 2014 and are signed on its behalf by: Anthony Best Director Robert Hart Director COMPANY REGISTRATION NUMBER: 08393914 Page 21